Counteroffering the Landlord’s Lease-Renewal Proposal

As
a prospective or new franchisee, you will have to deal with the initial
commercial lease. When you do open for business, you will, in due course, have
to deal with a commercial lease renewal. Much like the initial lease, a lease
renewal should not be simply accepted as presented … you can – and should –
renegotiate the terms to your benefit. Therefore, the landlord’s lease renewal
proposal is just the beginning.

When
negotiating your lease renewal, remember to put your signed counteroffers in
writing, with an expiry date within which time the counteroffer is open for
acceptance. You have likely had a prior verbal conversation with the landlord
or their representative about renewing your lease. Giving your landlord some
advance notice is our recommended approach, so he will expect to be meeting
with you and will not be surprised.

If
you have a complaint about the potholes in the property’s parking lot, start by
asking your landlord about them. Your landlord may reply that pothole repairs
are already scheduled – in this case, you will not have to pursue the matter.
The only thing required is a written confirmation from the landlord that the
pothole work will be done. Determine the list of items you need to address
well in advance and be prepared to discuss them with the landlord and include
them as part of the negotiation.

If
you have seen a reduction in sales, now is the time to request a rent
reduction. Low sales may be caused by any number of reasons – there may be many
vacant units around you, the anchor tenant may have moved out of the property,
an industry competitor may have opened up shop nearby, the economy may have
shifted, or another landlord has built a brand-new development close by that is
drawing customer traffic away from your location.

We
also frequently recommend that you shop your tenancy around to other landlords
prior to signing a lease renewal with your current landlord. By doing site
selection, you can motivate your landlord who may fear losing you as a
rent-paying tenant. Even if you don’t want to move, you can keep this fact
quiet to your current landlord. Simply explain that listing agents from other
properties have contacted you to offer leasing opportunities elsewhere. To
strengthen your case, collect written Offers to Lease from other
agents/landlords and show these to your own landlord.

Granted,
doing site selection takes time and effort and you may think that you could
just bluff your way through this. It is far better to do the actual legwork
required as commercial landlords often have a pretty good grasp on other spaces
for rent and asking rents. When doing site selection, consider all properties
available – even if they vastly differ from your current location. At the end
of the day, if you move out, your landlord will lose your vacancy and have to
start from square one with trying to replace you. This means listing the space
again, fielding enquiries, and waiting for a new tenant to commit to a Formal
Lease Agreement. While this happens, your space often sits empty and does not
generate any income for the landlord.

As a final note, you can realistically expect some
challenges with renegotiating lease terms. Things don’t always go as planned!
Allow for plenty of time, effort, and negotiating expertise when
counteroffering your landlord’s lease renewal proposal. Don’t rush into
anything that you may regret later!

Dale Willerton
and Jeff Grandfield - The Lease Coach are Commercial Lease Consultants who work
exclusively for tenants. Dale and Jeff are professional speakers and co-authors
of Negotiating Commercial Leases & Renewals FOR DUMMIES (Wiley, 2013). Got
a leasing question? Need help with your new lease or renewal? Call
1-800-738-9202, e-mail DaleWillerton@TheLeaseCoach.com or visit www.TheLeaseCoach.com.